Taxes, dividend yields and returns in the UK equity market
Morgan, G. and Thomas, S. (1998) Taxes, dividend yields and returns in the UK equity market. Journal of Banking and Finance, 22, (4), 405-423. (doi:10.1016/S0378-4266(98)00002-8).
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The higher rate of taxation on dividend income relative to capital gains has been offered as an explanation for the positive relation between stock returns and dividend yields among US firms. In the UK the relative tax rates are the reverse of those in the US. Thus, UK data provides an independent test of the tax-based approach to explaining the relation between stock returns and dividend yields. We find that high yielding stocks earn positive risk adjusted returns, whereas low yielding stocks earn negative risk adjusted returns. We also detect evidence of non-linearity in the performance of zero-dividend stocks. Controlling for firm size, seasonality and market risk we find a significant positive relation between dividend yields and returns. We conclude that the evidence is inconsistent with a tax-based explanation.
|Keywords:||UK dividend yield, size, seasonality, taxes|
|Subjects:||H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
H Social Sciences > HF Commerce > HF5601 Accounting
H Social Sciences > HJ Public Finance
|Divisions:||University Structure - Pre August 2011 > School of Management
|Date Deposited:||01 Mar 2007|
|Last Modified:||25 Apr 2013 14:04|
|Contact Email Address:||S.H.Thomas@soton.ac.uk|
|RDF:||RDF+N-Triples, RDF+N3, RDF+XML, Browse.|
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